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they necessarily involve consequences that must, if realized, deeply prejudice the public interests, they ought to be most sedulously provided against. But the evil we have endeavoured to depict is not merely possible or probable, but present. - We have not to deal with a contingent and future, but with an existing and urgent state of things. Neither is it of new or recent occurrence. On the contrary, the bankruptcy and ruin that overspread the country in 1792, and in 1825-1826, as well as our late and present difficulties, bave all had the saine origin; that is, they have all grown out of the defective and vicious principles on which our paper currency has been established.
It is not necessary, in order to get a sufficiently distinct view of the circumstances which occasioned the late and present difficulties, to go farther back than January, 1836. At that epoch the exchange was either at par or slightly in our favour,-showing consequently that the currency was at its proper amount, and that it ought neither to be increased nor diminished otherwise than through the influx or efflux of bullion. But while matters were in this situation, a peculiar combination of circumstances conspired to set on foot and inflame a wild and dangerous spirit of speculation. The favourite objects to which the public attention was directed, were the formation of companies for the construction of Railways, and the establishment of Joint-Stock Banks. The ruin of those concerned was the worst evil that could result from the formation of crude schemes of the former description, or from the undertaking of works that could not reasonably be expected to yield a profitable return. But it was quite otherwise with the rage for banks. Had they been only banks of deposit, their multiplication, how little soever it might have been required, could not have been productive of any considerable inconvenience. Unfortunately, however, they were not so restricted; and, besides undertaking the care of other people's money, they almost all set about issuing money of their Own. The extent to which paper mints of this description were multiplied, during the early part of the past year, would harldly be believed by any one not conversant with the facts. From 1826, when the act authorizing the formation of joint stock banks in England and Wales passed, down to the 31st of December, 1835, being a period of ten years, sixty joint stock banks had been established in England and Wales, giving an average of six banks a-year.
But in 1836 a new era began-a mania for joint stock banks suddenly grew up-and such was its violence that between the 1st of January and the 26th of November, 1836, no fewer than forty-two of these establishments had been organized and brought into competition with those previously existing!
In point of fact, however, the number of banks created during the past year was vastly greater than appears from this statement. We believe that, at an average, each of the forty-two new banks had from four to six branches; and as these branches transact all sorts of banking business, and enjoy the same credit as the parent establishment, from which they are frequently at a great distance, they are, to all intents and purposes, so many new banks; so that, instead of forty-two, it may be safely affirmed, that about two hundred new joint-stock banks were opened in England and Wales in 1836! It is of importance, too, to observe, that more than three-fourths of these banks issued notes payable on demand ; that many of them had a very numerous proprietary; and that, whether justly or not, most of them enjoyed at their first outset the unlimited confidence of the public. The wonder, under such circumstances, certainly is not that their issues were increased, but that they were not much moreincreased than they actually have been. The subjoined statement shows the amount of their issues, and those of the private banks, since the publication of the quarterly returns in 1833. Account of the aggregate amount of Notes circulated in England and Wales by Private Banks,
and by Joint Stock Banks and their Branches, distinguishing Private from Joint Stock Banks. (From Returns directed by 3 and 4 William IV.)
It appears from this table that the issues of the joint-stock banks have been increased between the 26th of December, 1835, and the 31st December, 1836, from L.2,799,551, to L.4,258,197, being an increase of L. 1,458,646, or of above fifty per cent! And it will be recollected, that in January, 1836, when this increase began, the exchange was but slightly
VOL, LXV. NO, CXXXI.
in our favour, and that the currency was either full or very nearly so. What, therefore, was to be expected, but that the excessive multiplication of banks, and the addition to their issues, should depress the exchange and occasion a heavy drain for bullion? The difficulties that grew out of this state of things could not possibly take any one by surprise who is acquainted with the most obvious principles. The symptoms were glaringly obvious. The • com monestobserrer must,' as Mr Horsley Palmer hastruly stated, • hare seen the gathering clouds and dreaded the consequences.'
But we should vastly underrate the effect of this sudden and unprecedented multiplication of banks, if we estimated their influence on the currency, by the mere addition they made to the issue of potes. This, in truth, was the least part of their effect. The immense mass of bills, checks, and other substitutes for money, which they were the means of putting into circulation, were of themselves far more than sufficient to occasion a redundancy of the currency, though they had not issued a single note. It is true that their excessive multiplication led to the suppression of a few private banks; and to a contraction of the issues and business of several of those that still went on. But the preceding table shows that the diminution of the private, was much less than the increase of the joint-stock issues; and, with respect to the other part of their business, there can be no comparison. The facilities given by the joint-stock banks to the discount of even the worst species of paper, the loans they made on the pledge of their own stock combined with the economized use of money resulting from many thousand of their partners using checks who, for the most part had previously used notes or coins, all contributed to swell the amount of currency beyond all reasonable bounds ; – to add very powerful incentives to the spirit of speculation, and, in the last place, to depress the exchange, and bring about that drain for bullion that has so much reduced the stock in the coffers of the bank.
Having thus briefly endeavoured to exhibit the extraordinary increase of joint-stock banks in 1836, we have next to enquire into the contemporary conduct of the Bank of England. Early in the year, it became obvious to every one acquainted with the mere elementary principles of money and commerce, that the inordinate increase of joint-stock banks would very speedily render the currency redundant; and that, unless the Bank acted with equal sagacity and vigour, she would be placed in a situation of extreme hazard. The stock of bullion in the Bank's coffers at the commencement of the year was, as already stated, little above seven millions ; being about three millions under the proportion, as compared with her liabilities, which was necessary, according to the evidence of Mr H. Palmer in 1832, to give her
adequate security. And while her bullion was thus reduced, all sorts of wild and delusive projects were afloat; every day was giving birth to a new bank in some part of the country; vast quantities of American and other securities were, at the same time, brought for sale into our markets; and, in March, one of the principal officers of the Bank of the United States arrived in London for the avowed purpose of negotiating a loan, which he effected, on behalf of that establishment! The fancied security of the greater number of merchants and money dealers, and the reckless eagerness with which they contracted new engagements, while they were thus being brought to the very edge of a precipice, is a fact as instructive as it is humiliating. That a dangerous crisis was at hand was, however, clear to every one not a slave to mere routine practice, or who had the slightest knowledge of principle. The leading Bank directors were sensible of the coming storm; and the question, whether they acted in this emergency prudently and vigorously, and with a due regard to the safety of the Bank and the public interests, is one of equal difficulty and importance; and forms one of the principal topics discussed in the numerous pamphlets quoted at the head of this article. The conduct of the Bank during the past year has been ably defended by Mr Horsley Palmer, and ably impugned by Mr Loyd. Perhaps it will be found that it is of a mixed character; and that in some parts it is censurable, whilst in others it deserves to be applauded. In order the better to enable the reader justly to appreciate the points under discussion, we subjoin the following table of the issues, liabilities, and bullion of the bank from January, 1836, to March, 1837.
Circulation. Deposits. Securities.
12th January, 1836.
£ 17,262,000 19,169,000 31,954,000 6,625,000 451,000 17,427,000 18,366,000|31,022,000 6,957,000 514,000 17,739,000 16,966,000 29,806,000|7,153,000|548,000 18,06:3,000 14,751,000 27,927,000 7,239,000 562,000 18,154,000 13,747,000|27,042,000 7,214,000 568,000 18,051,000 13,273,000|26,534,000 7,083,000 575,000 17,899,000 13,810,000 27,153,000 6,784,000 578,000 17,940,000 24,495,000 28,315,000 6,351,000 575,000 18,061,000 14,796,000|29,345,0005,766,000 539,000 18,147,000 14,118,000 29,406,000 5,211,000 508,000 17,936,000 13,324,000 (28,345,000 4,810,000|447,000 17,543,000 12,682,000 28,134,000 4,558,000|375,000 17,361,000 13,330,000. 28,971,000 4,545,000 17,422,000 14,354,000 30,565,000 4,287,000 17,868,000 14,230,000|31,085,000 4,032,000 18,178,000 13,260,000 30,579,000 4,048,000
It is seen from the account of bullion in the coffers of the Bank in this table, that it was increased above L.700,000 in the quarter ended the 5th of April, 1836, when it began to fall off. It further appears, that the issues of the Bank were increased during the same period about L.800,000. Under ordinary circumstances, such an increase, being nearly identical with the increase of bullion in the Bank, would have been quite unobjectionable; but considering the peculiar position in which the Bank was then placed, we are clear that, instead of increasing, she ought to have narrowed her issues. This would certainly have been as Mr H. Palmer has stated, acting in anticipation of events likely to occur; and have violated the principle by which the Bank prosesses to be guided of allowing the public to regulate the currency for itself through the demand for bullion. But there are not many absolute principles; that is, there are not many that will admit of being rigidly enforced at all times and under all circumstances; and we do not think that this is one of that small number. Had the Bank been the sole issuer of currency, the principle might and ought to have been enforced; but under the actual circumstances of the case it should have been modified. It is true, that to have acted in the way we have suggested, would have been anticipating. But the stock of bullion in the Bank was below. its proper level; and there was not, and could not be so much as the shadow of a doubt, that the waters were already out, and the winds beginning to blow. Every moderately well-informed man, and none more clearly than Mr Horsley Palmer, foresaw the coming tempest; and, on the same principle that a prudent commander, on the first symptoms of an approaching storm, reefs, his sails, lowers his topmasts, locks down his hatches, and sets his pumps in order, ought the Bank to have anticipated and prepared for the crisis she knew she could not possibly escape. Every newspaper that got within her walls contained accounts of the opening of new banks in all parts of the country; there was a rapid and all but universal rise of prices; every day was adding to the enormous mass of American securities and bills; the exchange was gradually falling; and every thing portended, in a manner not to be mistaken, the near approach of the period when the Bank would be called upon to stand in the gap, and to give gold for paper till the currency had again recovered its value. The danger she had to encounter was alike imminent and certain; and it surely was the bounden duty of the Bank to have made every preparation for coming successfully out of the trial to which she was to be exposed.
By adding to her issues from January to April, 1836, the Bank certainly contributed to strengthen the joint-stock mania, and tempted well-conducted banks also unduly to extend their issues.